So Much For "Housing Has Bottomed" - Shadow Housing Inventory Resumes Upward Climb

Tyler Durden's picture

Appropriately coming just after today's Housing Starts data, which captured MSM headlines will blast was "the highest since 2008" is the following chart from this morning's Bloomberg Brief, which shows precisely the reason why "housing has bottomed" - and it has nothing to do with organic demand rising. No, it has everything with excess inventory once again starting to pile up, which means that the imbalance in the supply and demand curves is purely a function of shadow inventory being stocked away, and that there is once again no true clearing price.

From Bloomberg:

The shadow inventory of homes – those in foreclosure plus those 90 days late on mortgage payments – is on the rise again, a further indication that the supply side has not yet healed. Accoring to RealtyTrac, foreclosure starts jumped 6 percent on a year ago basis in the second quarter, the first year-over-year increase since 2009. There are roughly 4.16 million homes that could begin to flow to market.


Once one takes the number of homeowners 30- to 90-days late on their mortgage payments and includes the likely default of those that have negative equity on their homes, there is a strong possibility more than 6.5 million additional foreclosures will enter the pipeline. The  addition of homes that banks may be holding back suggests a much larger number. Laurie Goodman of Amherst Securities Group has testified before Congress that it could be as high as between 8 and 10 million.

And scene.

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TrainWreck1's picture

What is clearly needed is the banks to be able to purchase everything for pennies on the dollar, then rent it out to the ungrateful serfs.


j0nx's picture

At full market value to the serfs. FIFY.

Thomas's picture

Fourfold up from '07 and climbing. Quite the recovery. Somebody put a sock in Buffett's mouth next time he opens it.

GetZeeGold's picture



Hey, give Buffett a break. He stopped the pipeline to keep us from the cheap gas......thanks Uncle're the best!!!!


redpill's picture

Banks don't want to foreclose anymore, they realize they don't have the proper paper trail, don't want to incur liability, and don't want the bad press.  Instead we'll continue to see people go delinquent on their mortgage, have notice of defaults filed, etc., but instead of proceeding to foreclosure the vast majority will be resolved as a short sale.  That way the bank gets it off their books, they take the write off anyway, and they don't have to be seen as the bad guy foreclosing peoples' homes.  Banks are political entities more than ever, and are desperately trying to improve their image.

There is also the benefit that people are less likely to trash the place, and there won't be an extended vacancy period during which all kinds of nasty things can occur, so ideally as a short sale the properties will change hands in less of a distressed condition physically than if they actually go through foreclosure.

HarryM's picture

Phoenix market has been in a feeding frenzy for past couple of months.

Current inventory is 3 weeks - anything decent gets snatched in 1-2 days.

Selling 15% over asking prices - multiple offers.

Prices up 20-30% in last 4 months.

Keep in mind prices had dropped to 40% of 2005 levels, now at 60% of 2005.

Purchases are all Investor driven - buy em , fix em , rent em or flip em.

Absolutely insane

Next step of course is the A-Hole Builders will roll out tens of thousands of rentals all at once and destroy the market.

Harlequin001's picture

No, next up is that interest rates pop and they all get stuck with flips they can't flip.

Doesn't take the brains of a rocket scientist to work that one out...

Offthebeach's picture

Many serfs, or their children, have extra body organs to sell. Do you really need two eyes to watch Jerry Springer, Cajun Pawn. HSN, NASCAR? Lung lobes, eyes, kidneys, skin, tendons...
We need a junk serf organ bond market where in return for housing unti they are called to turn over their parts. All money would go from sales to the banks.
Or we could just continue with the present system of perpetual tax/debt/printing by the gov then to the banks. No need for a "regulated" market.

Shizzmoney's picture

Summary: Rich people and those with good enough credit to take on huge amounts of debt buying houses.

The rest of us? Your rent is going up.

azengrcat's picture

True in the phoenix market. Investors are buying up shadow inventory at auction and buying mortgage paper while consumers are left fighting over the scraps in mini bidding wars over dumpy investor flips.

toady's picture

Hello fellow Phoenician!

The auction stuff I've seen has been the 'scraps' you mentioned, yet the volume of bidders is high(30+ on average).

The neighborhoods I have monitored are flat line. For every house that is sold another is abandoned. Shadow inventory isn't going up or down, but the neighborhoods I watch are limited.

I've seen a couple of questionable people approved recently. Maybe the banks are loosening up again ...

groundedkiwi's picture

And when government stops paying subsidies for rent, what happens then?

Winston Churchill's picture

Hope they are doing it on credit.

Over 2000+ fraudclosure victims have already regained

their house back,leaving the new 'owners' well and truly fucked.

Thats just starting and will turn into a Tsunami.

Enjoy that house whilst you can.


Unbezahlbar's picture
J.C. Penney laid off an additional 350 people at its Plano headquarters


some of those "rich people" may soon see changes too....

Hmm...'s picture

In my neck of the woods the market is a mess, but better than the past.  Certain properties sell, others sit there forever.

But what is most interesting is the number of apartment complexes being built.  You can't throw a frozen chicken 10 feet without it hitting a new "luxury" apartment complex.  Asking rents are outrageous.

Luxury apartment complexes are the luxury condos of 2006.  This will not end well.

RobotTrader's picture

And guess who the first "victims" are of this news?


The Gold Bugs, GC now down $21

bigdumbnugly's picture

housing hit bottom some time ago for r.t.

he's still in his mother's basement 

augustusgloop's picture

he thinks of it as his man cave:


ps gold started its dive, as it does nearly every day, at 4 am / london trading. 

bigdumbnugly's picture

yes, i synchronize my clocks at home to it.

MarsInScorpio's picture

Augustusgloop: I took the time to read the Bloomberg article - thanks for the reference.


To me, it illustrates the widening gap between the rich and everyone else. Sales for these homes continue among the Ultra Rich because the bulk of income increases go to them. The rest of the population is either stagnant, or declining.


To me, the cognitive dissonance comes from comparing the bulk home sales against these Ultra Rich sales. While the bulk of new home sales is still at historical bottoms, the sales to the Ultra Rich are trending up as their income goes up regardless of what is happening to the general population.


I'm curious to see if there will be a revolt against whatever you want to call this economic/political system - I use the word kleptocracy. As has been pointed out relentlessly in ZH, the financial criminals are not being arrested; they go off and are left alone so long as they don't rip off their fellow Ultra Richers. That's why Corzine is walking free, while Madoff will die in a federal prison. Madoff ripped off the wrong subculture.


So the income disparity will continue, and because of America being so suburban, rallies like you see in Europe will not occur here.


This election is asking which Wall Street muppet will be president. As I've noted before, there will be no economic justice from Romney, only the chance to get rid of the Black Racists running the Just Us Department.


TrillionDollarBoner's picture

You are so right. I'm off to sell all my gold and buy into the true safe haven: US property.


sudzee's picture

Lookin forward to buyin a few houses for 1 ounce physical each.

LawsofPhysics's picture

You better make sure that the seller actually has the fucking note or title first - therein lays the rub.  You may be suprised to learn that several entities have a claim on the property, so good luck with that.

Getting Old Sucks's picture

That's a real no-no to bring that up.  Notice you never hear that topic in the news?


duo's picture

It's called running the stops.  I thought you would know that.

azzhatter's picture

The problem with an "improving" market is all the pent up selling demand. I personally know 4 people who are witing for the first sign of an uptick to put their homes on the market. A lot of people ready to bail

lynnybee's picture

' bail to where ?'    ....   there is nowhere to run, i have tried, so i am now hunkering down and building my bunker, fortified, am now a hoarder.   

Vergeltung's picture

you bring up a very important point. there is indeed a HIGE pent up selling demand. as soon as prices begin to climb, they will crater again, for exactly that reason!

StockHut's picture

I never understood why the financial media obsesses over housing starts.  There is such an excess of supply, why the hell would we want to add to it?  Home builders need to go bankrupt and stop building houses, then the housing market has a shot at stabilizing.

Wrender's picture

Spot on.  Where are all the people who are going to fill all the vacancies on the market? 

If interest rates and the lending industry actually reflected the long term risk of overbuilding the market you would need a frozen chicken rail gun to hit a new build.  Yet we live in a market where short sited blinders are common place. 

Stuck on Zero's picture

The housing starts are in booming places like North Dakota and areas with shale gas.  The housing defaults are in the liberal states.


FreedomGuy's picture

This is an interesting topic on many levels. First, StockHut, I think you are actually correct. In Austrian economics we have the classic misallocation of resources because of government stimulation through the artificially low credit rates and pressure to lend to everyone including the unqualified. It set in motion a huge false demand as many new buyers entered the market at the bottom, primarily. Does anyone else remember the late night infomercials on how to get rich quickly pyramiding housing sales? I knew it was trouble then.

Skyrocketing prices and demand sends a clear economic signal even a deaf man could hear to move more money, resources and people to home construction. Trees get cut, trucks transport stuff, people are trained as electricians and carpet layers, finance companies pop up, etc. Hundreds of thousands of people moved into the industry.

Now that we have discovered the demand was false, the prices are false and the projections are false, we in a process of true price discovery. However, the true price is different than it would have been because their are enormous excess inventories. When the waitress from Vegas owned 15 homes there must eventually be 14 other people who actually want to live in those homes, even as renters much less buyers. There were not. In fact, 15 home owner speculators were selling to other 15 home owner speculators driving prices further.

Second, there is a long term demographic shift as the population ages and the younger members have fewer kids...unless on state assistance. I see older Americans downsizing their homes, moving to low maintenance condos and smaller places. Again, inventories should rise.

I expect housing will be a crappy personal investment for the future. In the present...some companies need to fold and some others need to find new lines of work.

This is the real fruit of central planning. Get used to it. It is everywhere, now.

buzzsaw99's picture

Multi family units to cater to section 8 recipients. Snap and section 8 are growth industries.

adr's picture

You should see the new section 8 luxury estates going up in every major city in Ohio. They are glorious. Manicured lawns, three stories, mid century style streetlamps, playgrounds for the kids, central AC, triple pane double hung windows, full kitchens with stainless appliances, vinyl siding, and gas fireplaces.

If you show them to anybody they think it is a new luxury condo development. Then you ask them to look at the cars and the people walking around. They see the Cadillacs with 22" dubs and guys walking around in white tank tops with red bandanas. You then see most of them throw up in their mouth a little.

Wrender's picture

Add to this the fact that the EPAs new requirments on Lead Based Paint will place HUGE costs on existing (read older) section 8 developments where the restrictions and regulations are close to fiscally impossible w/out putting up a new building.  Get ready to see older section 8 buildings razed and replaced w/ luxery new builds.  A sub-bubble being quickly inflated w/ hot air. 



Omen IV's picture

do you have a link for this new regulation? if it affects lead based paints does it also effect asbestos in old buildings 75-100 years old which usually go hand in hand with lead based paints?

Wrender's picture

As far as I know this only applies to lead based paints.  In short the new regulations require almost any work being done in a residence to have a contractor licensed for lead paint (class time plus money to "the man" for licensing/credentials). Anytime you do more than touch a painted surface you have a whole new set of procedures to go through. There are extra restrictions on section 8 and affordable housing. 

I know of a few people who are fighting to keep their buildings due to problems associated with these new policies.  The costs for remediation are just too high.  I could go on and on but will leave it short... 

More details can be found here:

Quinvarius's picture

I knew this was happening just from going running every morning.

BTW, anyone notice how old and stressed Bernanke looked yesterday?

Village Smithy's picture

He now fears the Frankenmonster that he has created. Bond yields will rise and the bubble will break.

groundedkiwi's picture

I did notice Bernankes dishevelled look. It looked very contrived to me. Reminded me of the Georgian President chewing his tie as an SOS to the USA.

monopoly's picture

I guarantee that you will not see this graph or its explanation on the idiot channel or MSM. 

Jason T's picture

home equity loans of interest only are going to start to be both interest and principle

blueRidgeBoy's picture

the bottoming has bottomed

LawsofPhysics's picture

Before you can stack things on top of other things, you need to build them first. Who says you can't channel stuff in housing?

Never One Roach's picture

I see so many houses for sale that sit there for months even though they drop the price to below $50 psf. Some turn to rentals which are now beginning to flood the market and rents are dropping as rental supply of houses and apartments  soar. Rentals may become a Bubble on top of the house Bubble.

adr's picture

Nearly every house that sold in my neighborhood was sold to a speculator looking to flip it. Almost all of them a rental properties right now. Most of them are still vacant.